Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

March 29, 2017

Why You Should Fire Customers, And How

Filed under: Marketing — Tags: , , , — Mike Van Horn @ 10:18 am

With all the marketing focus on getting clients, let us not ignore the clients you should get rid of.

“You’re crazy!” you say, “Why would I want to fire a customer?”

Here’s why:

The client is unprofitable or distracting to the rest of your business. They may have been good in the past, or perhaps you should never have taken them on.

Here’s the thing – it’s possible you’re putting way too much attention and effort into a small a number of customers that are never satisfied. This is at the expense of other customers who are happy and complementary of your work.

When your company is small, you take in any business to build it up. When times are good, perhaps you take on any customer. But as you grow, it’s prudent and profitable to become more selective. And as business slows, you should be less tolerant of marginal or unprofitable customers. They can actually threaten your business.

When to fire a customer:

  • The job is too small, and the cost of serving them takes most of the potential profit.
  • They are too large, and keep insisting that you lower your price — until the work is unprofitable.
  • They are too different. They buy something that you have been selling but you no longer want to sell. For example, a print shop wants to close its graphics department, or a landscape contractor wants to close its maintenance section.
  • The job is too distant. When you had a lot of customers in their area, it was worth serving them; but now that you only have a couple, you actually lose money on them.
  • They are more trouble than they are worth. These customers argue with you, are never satisfied, are slow to pay, or all the above.

Now, obviously it’s not easy to fire a customer. Here are some suggestions to soften the blow:

  • Refer them to someone else that you know would be more appropriate for them. Sending business to someone else may entice that person to send a good referral back to you. However, don’t send problem customers to your good referral sources!
  • Give them some warning. “After this next project, we won’t be able to work with you any more.” Tell them why.
  • Instead of getting rid of a customer, ask yourself how you can turn an undesirable one into a good one?
  • Then when you tell them why you can no longer work with them, they may be able to change something that will make them a good customer.
  • Raise your price. They will either leave, or it becomes profitable and more enjoyable.
  • Change the way you work with them. Instead of 1 on 1, get them into group workshops, or steer them to online programs.
  • Change the terms of your work. Instead of fixed price, charge for your time and materials. Make sure you get change orders for extra work they request. Overcome your timidity and be polite but firm: “Yes! We’d be delighted to do that for you, and it will only cost you an additional…$$.”
  • Require pre-pay or payment by credit card, to cure slow payers.
  • Be the squeaky wheel. Stay on them. Oftentimes we don’t hold clients to the agreements they make with us. We let them slide and then we moan about it. Remind them what the agreement is, and request firmly that they abide by it.

You have nothing to lose by doing any of these things. Bad clients lower profits and distract your business. Since you were going to fire them anyway, they just might work.

March 16, 2017

Marketing—Do I Have to Do It All Myself?

Filed under: Marketing — Tags: , , , , — Mike Van Horn @ 2:17 pm

You’re a busy business owner, you’re up to your ears in scheduling, bookkeeping, and managing people. Do you really have to handle every aspect of marketing, too? Here’s the blunt truth: No one you hire will ever care as much about your business as you do. Period. You can’t clone yourself, but you can put your time and energy where it counts. Here’s why, and how, to delegate your marketing:

Yes, You Do Have to Take the Lead in Marketing

  • It’s your company. You care the most about it.
  • You know it best.
  • You are the most motivated to sell.
  • You got into your business because you are good at marketing and selling your offering.
  • Customers want to connect with you, the owner.

No, You Don’t Have to Be a Marketing Martyr

  • It gets to the point where it’s too much for you to handle—plus do customer work.
  • Doing all the marketing tasks is not the best use of your time.
  • You may not be the best sales person in your company.
  • Parts of the marketing are easy to hand off to others.
  • You don’t have the expertise to handle all the parts.

There Are Some Things Only You Can Do:

  • Set the mission, vision, strategies, goals
  • Build strategic relationships.
  • Choose good people to help you market and sell.
  • Make sure they do what you want.
  • Approve your marketing and promotions.
  • Insist on results, not just effort.
  • Tweak your direction and offering; develop new things.

You Should Never Do Things That . . .

  • You are not good at. You can find better people to do them
  • You can easily hire and delegate to other people.
  • Get in the way of you doing what brings the greatest value to your company

Do this . . .

  1. Make a list of the Marketing tasks you’re good at, and that bring the most value.
  2. Then make a list of the tasks you’re eager to get off your plate.
  3. As you hire people – contractors and in-house, be clear about the tasks you want them to take over, and what you will continue to do.

Your Marketing Job

  • Define your pathway—your overall strategy to reach your vision.
  • Build your marketing team of skilled people who can help you execute your strategy.
  • Orchestrate your team; oversee team performance.
  • Review results, tweak, refine, and change direction when needed.

As the owner, it’s up to you to set the overall vision and define what success looks like. From there on, empower people to make it happen.

Does All This Pertain to a One-Person Business?

As a solopreneur, unless work just falls into your lap, you have to spend a good portion of your time drumming up new business. Plus doing the work. Plus all the admin stuff. How many hours a day do you want to work? (Clue: the max is 24!)

If you have a viable business, you soon discover that it’s worthwhile to hand off pieces to others: website design and maintenance, social media, copywriting, maintaining your marketing database. You notice that you depend on all these others, even though they aren’t your employees. You’re no longer a one-person business.

The option is to stay tiny and run yourself ragged.

March 14, 2017

Are Your Low Prices Driving Away Customers?

Filed under: Marketing,Profit — Mike Van Horn @ 12:49 pm

Do you price too low?

Many small businesses under-price. They should raise their prices. Pricing too low has several negative consequences:

– You drive away your preferred customers. Sometimes larger companies expect to pay a certain level, and if you charge less, their judgment is that you’re not qualified to provide what they want.

– You attract undesirable clients and customers. Those you attract are smaller jobs, clients that are on tighter budgets, the nickel & dimers, those who are shopping for low price over high quality.

– You are not very profitable. This makes your business vulnerable. You’re not building up enough reserves to weather hard times. You can’t afford to pay yourself well, to upgrade your marketing presentation, to pay your people as well as they should be paid.

You can’t afford the strategic thinking and marketing you need to boost your company to the next level.

You can’t afford to hire top-level people, so that more of the work falls on your shoulders when they aren’t up to it.

– You are leaving money on the table. Ask yourself, “If this client hires somebody else besides my company, how much will they have to pay?” If you answer, “They’ll probably pay more to a larger vendor, and the quality might be lower,” then it’s time to raise your prices.

How is pricing a marketing issue?

Pricing is part of your message to your prospective customers. If you set prices too high—or too low—it sends the wrong message, and they won’t do business with you.

Prices are set according to several criteria:

1) Profitability. Making sure all costs are covered with enough left over to give the desired profit margin.

2) Competition. Prices are constrained by your competition.

3) Image. Do your prices fit your image? Will they attract your preferred customers?

Why do you price too low?

Timidity. You’re afraid if you raise your prices, you’ll drive away your customers. You may indeed drive away your marginal customers, giving you more time to focus on your better, more profitable ones.

You don’t know what all your costs are, so you systematically underprice. Costs that are often neglected when setting prices:

Marketing and selling. The cost of getting your customers

Owner’s time, both sold and unsold

Owner’s profit, i.e.. return on your investment of time and money

Cost of glitches, mistakes, slippage, theft

Recouping the cost of developing the products or services

You price based on hours spent or cost of goods sold, rather than on the value you provide to your customers. (See our post “Sell Value, Not Time.”)

What if you can’t raise prices?

If you feel this way, it’s time to ask yourself, are you in a viable business, or not?

Perhaps this pertains to just one part of your business. What do you sell that can or cannot bear a price increase?

Redesign your product or service so that you can sell it for the prevailing market price and retain your target margin.

If you can’t raise prices, control your costs.

  • Cost of labor. Set a maximum labor ratio (sales revenue divided by cost of labor including labor overhead). Watch that number like a hawk. Many small businesses have real trouble tracking this number, because they can’t get their employees (and themselves!) to keep track of how much time they spend on different tasks.
  • Inventory control. Make sure you aren’t holding too much expensive merchandise. Get rid of stale merchandise. Improve your controls of theft, waste, and returns

Focus on profit, not just revenue

When you’re setting your prices, focus on your bottom line—your profit percentage—not just the amount of sales. Know what your profit margin needs to be, then set prices (and control costs) to give you that.

This is a tough lesson for many marketing whizzes. Only the ones with thriving businesses.

How to Prepare for the Next Downturn

Times are good, aren’t they? Will they stay good forever? Of course not.

Back in the last downturn, what do you wish you had done to prepare for future tough years? The time to prepare for hard times is during good times. That’s now.

You don’t want to hunker down and miss out on opportunities now for fear of what may lie ahead. So how can you take advantage of profit and growth opportunities now while taking prudent steps for later safety?

  • Control your costs. This is not sexy, but it’s the single most important step. And it’s the opposite of what many business owners do. When cash is rolling in, they go on a spending spree.
  • Run a lean operation. Don’t get lax with routine expenditures. Weed out people who aren’t doing the job you need done. Stay on top of scheduling, and don’t have more on hand than you need for each part of the day or week.
  • Hire top quality people; train them well. Build a growth team, and nurture their loyalty. A strong, loyal growth team will also be a “get through tough times” team.
  • Build habits of productivity and profitability during good times, so they will carry over into tough times. Make sure your incentives require and reward productive, profitable operation.
  • Raise your prices. Don’t lag behind your competition.
  • Keep your customers happy and loyal by performing impeccably, and handling mistakes completely and openly.
  • Make sure everything you sell is profitable. Make sure your systems can tell you what is most and least profitable. Weed out unprofitable products or services that drag down your margin.
  • Build up business savings, made possible by raising prices, controlling costs and boosting profits.
  • Stay on top of opportunities. Innovate in your products, services, marketing, and operations. Don’t get trapped behind the innovation curve by sticking with lower margin offerings.
  • Seek counter-cyclical business niches. What do you sell that will stay strong through a downturn?
  • Grow into profitable niches, so that you have a stronger basis for profitable operation during a downturn. Don’t be caught trying to sustain an unprofitable operation when a downturn hits.

Surprise!  Your preparation for a down cycle looks very similar to growing during good times.

Want a set of questions to help you discover how to make these things happen in your business? Just ask me and I’ll email it to you.

March 12, 2017

Collecting from Late-Paying Clients

Filed under: Finances — Tags: , , , — Mike Van Horn @ 3:06 pm

Q. What’s the best way to deal with non-paying or late-paying clients?
I’d like to try to avoid lawsuits, and I’d also like to maintain a positive relationship.

A. Here are a few ways to deal with late paying clients:

1. Set up an account on Paypal or Square, or a credit card merchant account, so that they can pay when the service is performed. Or even earlier, e.g., when they book your services.

2. Get a prepayment or a deposit.

3. If you invoice, specify your terms in writing.

4. Call as soon as a payment is overdue. If your term is “net 30” and they haven’t paid by day 31, give them a reminder call. “We didn’t receive your payment. When can I expect that? Can I get a credit card number to handle that?” The one who asks gets paid. The longer you let it go, the harder it is to get paid.

5. Ask if there were any difficulties. Were they unhappy with your work? Was something not complete? How could that be corrected?

If they don’t pay, here’s a sequence a steps you should take:

1st.  Have somebody else besides yourself call, who is friendly but firm, and will not be sidetracked by sad stories and excuses.

2nd. Send a letter.

3rd. Send an attorney letter.

4th. For an ongoing customer, say, “We will be glad to continue our work for you when we receive payment.”

5th. Take them to small claims court. Much easier than filing a lawsuit. Getting a summons to appear in court shakes many old payments loose.

“Maintaining a positive relationship” with somebody who is purposefully withholding money they owe you should not deter you from taking forceful steps.

On the other hand, if they don’t have any money, or you can see you’re not likely to get paid, and it’s not a huge sum, then let it go. Don’t make your life about this issue.

But don’t do business with them again.

December 10, 2016

Small Business Growth Tools

Filed under: Welcome to Mike's Blog — Mike Van Horn @ 8:16 pm

“Grow your business without driving yourself crazy!” is my slogan. My strength is helping you grow your business to the size you want, put more money in your pocket, and do it without having to work so dang hard!

What is your growth question and challenge? Ask me here, and I’ll do my best to answer them. See if you can stump me!

Mike Van Horn

August 12, 2014

How to Grow My Business

Many businesses stay small because the owners are afraid to let their employees take over important tasks, for fear they’ll make a costly mistake. Let’s face it: the owner is a control freak!

Here’s a basic rule for growing your business:

The more you can let go, the more you can grow.

• If you’re stuck being a worker or an administrator, you can’t be a good manager.

• If you’re stuck being a day-to-day manager, you can’t be a good strategic executive.

You’ve got to bring in top-quality people to handle every one of these tasks you hold on to and need to hand off, or you’re stuck doing them yourself. That holds you back, and limits your growth and profitability.

Many owners have a very hard time seeing this. They can see getting a bookkeeper or admin assistant, or hiring more producers, but they hold back from hiring a director of operations or a director of marketing. This keeps them small, and consigns them to low profit and low wealth build up. Then they complain about how hard they work and how little they have to show for it.

Hire good people, show them how to do what you need done, give them goals and targets, then let them do the job you hired them for, give review and feedback as needed. If they don’t do it, let them go, but that means you didn’t do a good job of hiring them in the first place.

For you to have good people so that you can let go, that means you have to learn to select good people–or get help from somebody who can help you choose and bring on board good people.

CEOs of rapidly growing companies are leaders of a growth team.

May 27, 2014

Expand to New Facility?

Filed under: Growth strategy — Tags: , , , — Mike Van Horn @ 9:16 am

Our business is growing steadily. When is it right to move into a new facility? How do we find funding?

We are getting close to capacity at the kitchen we rent but we are at a point where we (2 people) might not be able to meet the new volume without a new facility and more employees. The business isn’t grossing that much yet, but won’t unless we can increase output. Asked on MosaicHub by Eric Martin

Mike’s response

How can you increase capacity without increasing overhead?

— Find an “as needed” contract kitchen for the time being. A restaurant I frequent is open for breakfast and lunch, and is going to rent out its kitchen in the evenings for people like you.

— Do a second shift. Hiring a “night crew” is a lot cheaper than opening a new facility. Utilize your existing facility and equipment to the max.

Raise your prices! If you have increasing volume and you’re not yet profitable, you’re not charging enough. Unless you can demonstrate profitable operation, you’ll never be able to raise growth capital.

Get more efficient, and thus boost your labor productivity. I have a bakery client who started tiny, and now she’s at $3 million. It has been very hard for her to make the production more efficient. “We’re an artisan bakery!” she proclaims. But now she’s getting productivity religion, and it’s going straight to the bottom line. And quality is not slipping; if anything, the greater consistency is increasing quality.

Schmooze your bankers. Everybody’s first suggestion for raising money is crowdfunding, but I doubt it could work for you. You want permanent capital–perhaps $50,000 or more. You can’t crowdfund that much. You’d spend a huge amount of time and effort, then probably not make it.

Focus on getting profitable by getting the most from your current facility, get help putting a plan together, impress your banker, and get a legitimate capital loan.

 

 

April 9, 2014

Poverty Gulch

How to stay out of POVERTY GULCH

“I’m so busy on my big lucrative project that I have no time to market!” Then the project comes to an end. Now you have plenty of time to market. But you’ve been out of the flow so long that it takes awhile to fill your pipeline. You’re in Poverty Gulch.

boom and bust cycleYou have just gone from having a big project, where you are very busy, but fat and happy, to having no work at all. Since you were so busy–and making so much money–you did no marketing. When the project ends, your workload falls way off. You have to hustle for work until you get another big project. Then you once again forget about marketing.

This is a very common occurrence for entrepreneurs. It’s called the “boom and bust” cycle. What can you do about this? How can you keep a level of business development going even when you are focused on a large project, so that when it ends, it doesn’t take you so long to get back up to speed?

It is a matter of attitude and setting boundaries with your client. Are you the head of a business? If so, you must allocate time for all aspects of running your business, including marketing.

The biggest barrier to this is not the demands of your client. It’s your own preference to just keep working rather than face the uncertainty of drumming up more business. Admit that to yourself.

no povertyMany entrepreneurs much prefer doing client work than marketing for new work. For them, having one big lucrative client is the ideal–especially if the money is good. It’s a risky strategy, though.

Two options:

1. Set a limit: No single client absorb be more than 15%, or 30%, or 50%, of your work time. Choose your own number.

2. Make clear to your big client what your maximum weekly or monthly billable hours for them will be. Then stick to it. You don’t want to be their contract employee.

 

 

May 22, 2013

At What Age Should You Start a Business?

Filed under: Entrepreneurship — Tags: , , — Mike Van Horn @ 11:50 am

From a question asked on MosaicHub by Barbara Ciosek.

I’ve been advising small business owners for 25 years, and I see that people start businesses at all ages. Here are a few common categories:

20s. New professionals. People who get professional training, then go out on their own, so they never really work for anybody else (except their customers). Pretty quickly they see they must make their professional practice work as a business.

30s – 40s. Experienced professionals. People who start out working for a large company, get fed up with it, and strike out on their own, perhaps taking a few customers with them. Most of my clients fall into this category.

50s – 60s. Corporate escapees or castoffs get laid off–or retire–then either start their business or buy a business. I have a client who took his golden parachute from investment banking and started a yoga studio.

60s – 70s. Recycled Boomers. People who retire often get bored and decide to launch another venture. I have a client who sold his cable programming company at 67, and has started a training program for other retirees.

What about energy levels? I think it’s a myth that you have to work 24/7 when you start a business. Many do, of course, but I think that’s often due to poor planning–or choosing an inadequate business model.

The young often see older people as decrepit and slowing down. But when you get to be 70,  you might say, “Hey, I still love my work, and I still have plenty of energy and gumption. And what else would I do for the next 20 years or so?”

I, at 71, am about to launch a new offshoot from my company, training coaches and consultants to do what I do.

 

PS. This ignores the whole category of people who take over a family business, which can happen at any age, but most commonly in the 30s or 40s, after working in the business for a long while.

 

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